Bangladesh - Foreign Assistance

Foreign assistance

Independent Bangladesh, from the beginning, has been regarded as a test case for development by economists, policymakers, and program administrators of donor countries and international financial institutions. Interest in the area predated political independence, as East Pakistan represented the world's most extreme case of population growth outstripping resources. Because Pakistan was a single country, project design and approval processes occurred at the national level. West Pakistan, also poor, appropriated most commodity aid, capital, and technical and project assistance. The people of East Pakistan considered the attention they received to be inadequate and inequitable.

In October 1974, the Bangladesh Aid Group was established under the aegis of the World Bank, with twenty-six participating governments and institutions. Commitments of the aid group were US$551 million in FY 1974 and US$1.2 billion the following year. Aid to Bangladesh has remained at a high level since the consortium came into existence, although with substantial fluctuations in new commitments from year to year. After the high initial commitments, the figure fell to US$964 million in FY 1976 and to US$744 million the following year, before turning upward again. Fiscal year 1979 was another breakthrough period, with new commitments of nearly US$1.8 billion, a figure surpassed 3 years later when the level reached US$1.9 billion, the all-time high through FY 1987.

In the 1980s, the value of food aid declined to around 11 to 18 percent of new aid commitments, most of it given on a grant basis. Commodity aid--about 25 percent of aid commitments to Bangladesh -- included key items for increasing productivity, such as fertilizer, cement, steel, pumps, and other equipment. Project assistance accounted for more than 50 percent of new commitments. This form of aid was preferred by the largest donors because their funds are put to work in well-defined ways that can be related to policy objectives. From the beginning, the Bangladesh government has been unable to use project funds at the same rate as they are authorized. As a result, a pipeline of authorized but undisbursed project funds has grown bigger every year. The undisbursed project assistance pipeline was expected to exceed US$5 billion in 1988 and to continue to grow after that. Not until the 1990s at the earliest could Bangladesh hope to begin reducing the backlog of undisbursed funds.

Disbursement figures did not account for Bangladeshi repayments of principal and interest on previous loans. In FY 1986, for example, Bangladesh paid out US$117 million against principal and US$72 million in interest in connection with earlier aid disbursements. Thus the gross US$1.3 billion in disbursement of foreign aid that year netted an inflow of US$1.1 billion. Although these funds were equal to almost 10 percent of Bangladesh's GDP, they averaged only about US$12 per person, hardly a scale to bring about dramatic improvement in the economy's performance.

Because much of the funding for the development budget in the mid-1980s was financed by external donors, the Bangladesh government had to attract financing for high-priority sectors and projects. Coordination was carried on at all times between the government and individual donors, but the keynote each year was a meeting organized by the World Bank as leader of the Bangladesh Aid Group. At these meetings Bangladesh's finance minister presented his government's development plans for the coming year and sought pledges from the major donors for as much of the Annual Development Programme as possible. The donors also made presentations at the meeting, including assessments of the performance of the Bangladesh economy in general and of the development plans of the government in particular, as background to their views on the realism and appropriateness of the priorities adopted in the five-year plan. These meetings, alternating between Washington and Paris, were the formal culmination of a process that went on year-round. In the late 1980s, the main coordination point with foreign donors was the External Resources Division of the Ministry of Finance, which monitored development projects and administrative and management aspects of planning.